Hi all, I have drawn equity from my PPOR to purchase an IP. As far as I understand I can use the equity for deposit and stamp duty of the IP. What about other maintenance expenses, eg pest control, building insurance etc for the IP am I able to use that fund to improve my cashflow?
Yes. Improves cashflow but doesnt help equity. Just dont use borrowed $$$ to repay a loan. I assume you have a distinct loan split for the original borrowing purpose and the new IP funds arent blended.
So I have 2 offset a/c for my equity loan. 1 is to park my extra cash. The other one is for rent to go in and direct debits for interest repayments of both the equity loan and investment loan. I keep both offset totally separate. Is this ok ?
IDK...What loan does it offset ? If the offset is linked to the IP and not a non-deductible home loan it may be a poor setup. Drawing loan repayments from a offset which ever receives borrowed money and is linked to a IP loan may be a concern
ok in what sense? see Tax Tip 1: Parking borrowed money in an offset account Tax Tip 1: Parking borrowed money in an offset account
Hi Terry, I read your Tax Tip 1, still bit confused, so here's my scenario. After refinance to draw equity I have 2 loans : Loan 1 Homeloan $100000 with offset a/c 1 with $100000 Loan 2 Equity Loan $320000 with $320000 deposit into an empty offset a/c 2. I also have an offset a/c 3 linked to loan 2 to park my savings in there to be used as everyday transaction account so I can reduce the interest repayment. Now I also have an investment Loan for my IP of $360000 interest only. After I purchase my IP paying deposit and stamp duty, I will have $120000 left in my offset a/c 2 After reading your tax tip, my understanding is in order for me to maximise tax benefit and minimise interest I pay, I should move the $120000 back into Loan 2 redraw. Use offset a/c 2 for deposit of rents and direct debit interest repayments for loan 2 and investment loan. Q1 Is it ok to pay the short fall for interest repayments out of my offset a/c3 ? will that be considered as contamination of money? Q2 For future expenses of my IP eg insurance, pest control, can I use the money out of the redraw? Paying council fees, water bills can I use money out of redraw ? Q3 If my property becomes vacant, can I use the money from the redraw to pay the interest repayments? - but that will be using borrowed money to pay for borrowed money which doesn't seem right to me. Q4 Can I set up another offset to put the $120000 instead of putting it into the redraw ? Is my thinking even on the right track? I have asked my broker, he told me to ask my accountant, but I am on verge of changing accountant because I realised after purchasing my IP my previous accountant is pretty clueless and unhelpful. So I would appreciate some advise of what to do so I don't end up mixing my money. Thanks in advance.
1. if the offset has cash only, there would be no contamination issues 2. see Tax Tip 4: Borrowing to Pay investment expenses Tax Tip 4: Borrowing to Pay investment expenses 3. See Tax Tip 16: Capitalising Interest Tax Tip 16: Capitalising Interest 4. You can, but you are moving it further away from being 'borrowed money'. Sounds like your broker is a good one - seek specific tax advice from a licensed tax advisor.
Thanks Terry, Makes more sense to me now. I need to move the balance of my loan into redraw after settlement, and pay expenses for IP out of redrew. Much appreciated.
Just one more question regarding this, so is it right for me to say as long as offset a/c 2 has no borrowed money, I can have my PAYG pay going into this , or should I keep my pay seperate from my investment activities and have it go into offset a/c 3 ?
So essentially I don’t need offset a/c 3 to park my savings ? Can just use offset a/c 2 for rent deposits, loan repayments, PAYG income, savings as a daily transaction a/c ?
